A business loan can help a small business owner in a lot of ways. It can help during business expansion, for the marketing activities, to upgrade machinery/equipment, to hire more employees, open an office at another location, etc.
There are many options available in the market to obtain loans, through venture capital, crowdfunding, government schemes, banks, and NBFCs.
Bank loans involve collateral which is not feasible for every small business owner. NBFCs, on the other hand, provide collateral-free loans to small businesses, and the loan disbursal process is also faster than any traditional bank loan.
A collateral-free business loan saves time, does not involve the seizing of any asset, and helps during urgent fund requirements for businesses.
A collateral-free business loan can be of great help during shortfall of cash, when funds are required to expand the business, etc.
Here are some ways how collateral-free loans help small businesses:
1. No asset to be given as collateral
A collateral-free loan gives the borrower funds without any asset to be given as collateral. By this way, it is easy to maintain good credit without nay loss to any asset if the business owner defaults on the loan.
2. Credit is reusable
In case of a collateral-free loan, the borrower is given a set limit and, till the balance amount is paid, the credit can be reused.
Because of this, the lender is not at any risk and gives the convenience to both the borrower and the lender.
3. Collateral-free loans do not run on terms
Collateral-free loans do not have a predetermined end date. There are certain guidelines to follow, the payments have to be made on time as agreed, any default has to be avoided, but the access to funds is available when there is a requirement.
But if the borrower defaults on a collateral-free loan, the lender can take legal action and can take the property on possession until the debt is paid off.
4. Helps maintain the cash flow
Collateral-free loans cater to all funding needs for startups or established businesses.
But the funds have to be used wisely. When you have done proper planning, the income generated can be used to repay the loan, or for any business purpose. The business goal is achieved without spending the cash.
5. Quicker loan disbursal
The eligibility criteria of collateral-free loans are flexible, and the loan can be secured is less time as compared to a traditional loan with collateral.
Collateral-free loans also have a quick rate of disbursal, which helps businesses get the urgent funds they require and the business processes are also not stuck.
6. Short deadline
The repayment of collateral-free loans has to be done within a short period, which makes it easier for businesses to plan their budgets. It also helps in clearing the debts faster.
This helps the business owners gain access to capital in a easy manner.
7. Flexibility
Collateral-free loans provide flexibility in many ways. You can also choose the loan amount you require, the time period you require it for, and some lenders also give the flexibility to repay the loan earlier than the due date without any penalty.
8. Adds to the revenue
With all of these benefits of collateral-free loans, the borrower does not have to worry about the process and can give time to business operations and business growth.
These loans are designed to provide help to businesses. Thet can contribute to business growth, expansion, and business development without putting any risk on assets and property.
Every lender has its own set of eligibility criteria to give a collateral-free business loan.
Here are some basic eligibility criteria for collateral-free loan:
1. Business turnover
Turnover of the business should be between Rs. 15 lakhs to Rs. 1 crore in that financial year.
2. Age
Age of the applicant should be 21 when applying for the loan and 65 years till the time of loan maturity.
3. Number of years the business has been active
Generally, a business which has been active since at least 2-3 years is considered for a collateral-free loan, but a few lenders also consider businesses which are just a year old.
4. Credit score
The credit score is another important criteria which are considered for a collateral-free loan. A credit score between 750-900 is considered good, but it also depends from lender-to-lender.
Maintaining a good credit score is important for every business. The credit score describes the credit-worthiness of the lender. A lender conducts thorough research on the credit score of the applicant to know about the loans taken in the past, the repayment, defaults, etc. Therefore, updating the credit report after every 6 months is important.
This is especially important for a business which is just a year old.
Another thing lenders consider is the documentation. Documents establish the identity of the business. Documents also reflect the ability of the borrower or business owner to repay the loan.
Documents required for a collateral-free loan:
- PAN Card (of the proprietor)
- Aadhaar Card (of the proprietor)
- Bank statements of all bank account for the last 12 Months (in pdf format)
- Income Tax Returns (for the previous 2 years)
- Latest Balance Sheet & P&L (provisional/audited)
- Shop Establishment License/Gumasta
- GST Registration Receipt
- GST Receipts/Challans
- Business establishment and registration documents
- Partnership agreements (if the business is in partnership)
- If the business premises is on rent (proof of rent)
- Other licenses required by a business
Apart from this, the lender should also describe the objective of taking the loan, for what it will be utilized.
Also a display of financial statements to justify that the business is doing well, the profits of the business, the revenues, the projections of the future as to how the loan can help the business grow, etc.
Collateral-free loans are provided by NBFCs. They have a simple online process of the loan application.
Steps to apply for a collateral-free business loan from NBFCs:
1. Visit the website of the lender.
2. Fill the application form and upload the required documents.
3. Wait for loan approval.
4. Once the loan is approved, the loan amount is disbursed within a few days.
If you are in need of a collater-free loan at an affordable interest rate, contacting Gromor Finance would be a good option!
